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Which areas consumes the highest cost in starting up a Consumer Internet Business ?

In a Consumer Internet Business, what are the costs involved and which areas consumes highest cost during the initial stages.. From Idea Stage to Live ....

4 Replies

Sam McAfee
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0
Sam McAfee Advisor
Building Popup Incubators for Corporate Innovation Programs
I assume you mean a B2C web or mobile application of some kind. The main items on your P&L that will dwarf everything else are product development costs (the labor costs of engineering, design, and product management) and customer acquisition.

Customer acquisition is the silent bloodletting of consumer startups. Everyone knows software product development is expensive, but since you specifically mentioned "Consumer" it seems prudent to point out that most consumer products require a massive volume of adoption and continued usage to be profitable. The most likely models are SaaS (some kind of utility usually, like an Evernote), a marketplace (buyers and sellers in a vertical that has low efficiency transactions that software could improve), or a media play (like FB, etc., where the user is the product, and the model is ads). Any of these will require A LOT of users in order to get traction. That's got to be your focus.

If you're considering getting into a consumer web play, your team will need to iterate many times on your prototype or MVP to be sure you have hit something consumers really want before you invest in building a full-blown platform. You will simultaneously need to explore novel and standard tactics for attracting new users, and you'll need to do it very quickly. You'll need a team that is fast, nimble, and experienced.

Wherever you operate, your best bet is to assemble a co-located, cross-functional, dedicated team for this. Don't skimp on UX or speed of iteration. You can afford that in enterprise software, but consumers are ruthless. A team that's all together in one place will be best enabled to kick ass on this kind of challenge.

Paul Garcia
1
0
Paul Garcia Advisor
President at TABLE
Besides the (labor) overhead of any pre-revenue business, as Sam says, customer acquisition will be your next largest cost. I call this advertising, but advertising is just the bulk of it. There are other costs of acquisition that aren't as apparent and you should be aware and track those too.

If you're asking someone to create a list of all the expense items that go into your business plan, I'm afraid no one is likely to do that for free. It should be as detailed as to include the cost of paper clips. There are countless companies out there you can model. Talk to some if you haven't already worked for one that you want to model.
Syed Abdul Basith
0
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Syed Abdul Basith Entrepreneur
Business Architect
@ Sam, Yes I mean B2C with both Web and Mobile... I agree Product Development and Customer Acquisition will be major buckets and cannot agree with you more on the customer acquisition. My potential customers are students ranging from High School to PG/Doctorates and the customer LTV would be on lower side as the customer turnover will be high in my target segment . I believe it can follow multiple revenue models

Saas - As it wiil be a service
Media Play - Owing to higher numbers as the potential market is huge.

Or a Hybrid model that starts with Saas and graduates to Media play once it gains traction....

So need to figure out efficient and cost effective customer acquisition process.

I need still need to figure out a lot ... and the work continues


@ Paul ... I wanted to know the cost buckets at a very high level ....Product Development and Customer Acquisition major ones....Thanks you and Sam for that.
Any thoughts on other areas that I need to be cognizant of ? contender for 3rd spot maybe ..

Paul Garcia
2
0
Paul Garcia Advisor
President at TABLE
Syed, if you're going to have a physical office and not a virtual team, that's likely your third biggest expense. If you're talking about external expenses and not overhead costs, that's going to depend a lot on your business model (sales model).

My general recommendation is to select one slice of your market and focus on it exclusively. Yes, you may be deliberately overlooking other low-hanging fruit, but it's wiser to concentrate your efforts on one segment and get the sales cycle air-tight before you actively pursue broader markets. You'll learn way more about those customers and you'll exceed the noise/attention threshold much easier in a smaller segment than a mass market campaign. Generally in advertising the threshold to getting noticed starts around $500,000 per product (B2C) before consumers will even remember you. Spending less than that you will need to rely on strong partnerships to promote your SaaS product. Once you've established a stable foothold and are profitable, the advertising budget can settle in at 7% of gross revenue to maintain your position. That's a long way into the future unless you're very lucky.
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